- Date : 02/01/2020
- Read: 3 mins
Is the survivor liable to clear off debts after the death of their spouse? Here’s everything you need to know about debt liabilities and their nuances.
As if coping with the death of a partner wasn’t tragic enough, one often has to deal with the issue of repaying their debt as well. With the additional pressure of creditors calling you and adding to your grief, surviving alone is no easy task.
Among your many financial worries, the emotional trauma of debt is especially challenging. So, how can a surviving partner cope with debt liability? The answer lies in some legal nuances that can help you tackle the situation.
Let us see how different debt categories influence your responsibilities after a partner’s death.
Secured debt
When a debt is backed against a secured asset like property, it is known as a secured debt. This kind of debt can raise a potential problem if the deceased passes away before it is cleared. Default in payments requires the survivor to consider two factors in case of secured debt. First, the value of the asset must be determined. Second, the deceased’s share in the asset has to be evaluated.
If the asset is jointly owned, the collateral cannot be considered for sale to pay off the debt, as the share of the deceased passes to the surviving owner. In this case, you must continue making payments on the loan as per the agreement. If you are unable to do so, the bank can seize and sell the asset to cover the debt amount. If you want to understand more about joint life insurance, read this.
If your deceased spouse solely owns the asset, it can be used to pay off the outstanding amount. However, as a legal survivor, you must notify the creditor and provide them with a death certificate for the same.
Unsecured debt
Unsecured debt is not backed against any collateral security. Hence, they have a much higher interest rate. These include credit card loans, medical bills, car loans, utilities, etc. Since it is not secured against any asset, creditors cannot seize your items in case of a default.
Legal heirs are not liable to clear unpaid dues on unsecured debts unless an asset is inherited from the deceased. If an asset is inherited from your spouse, the creditor can legally claim the outstanding amount through a sale of these assets.
In case you are unable to clear off unsecured debt and declare bankruptcy, there are no adverse legal consequences. However, it would become very difficult to secure a loan in the near future, due to a negative credit score.
Joint debt
If your spouse has entered into a financial agreement with a second person (either you or a partner), it is called joint debt. Credit agreements, joint bank accounts, etc. are common examples.
Let’s consider a hypothetical situation. If you and your recently deceased spouse had a joint loan, the liability to clear the pending amount passes to you after their death. You are liable for the entire amount and not just your ‘half-share’.
Related: Should women opt for a joint bank account?
The need for life insurance
One thing to do in a scenario like this is to check for a life insurance policy. A term life insurance plan will take care of your overhead debt expenditures. The untimely death of a partner can trigger financial and emotional turmoil for the survivor. It is always a good idea to opt for a term insurance policy that is flexible and suits your needs. Read this story to understand how to manage a spouse's death claim.
As if coping with the death of a partner wasn’t tragic enough, one often has to deal with the issue of repaying their debt as well. With the additional pressure of creditors calling you and adding to your grief, surviving alone is no easy task.
Among your many financial worries, the emotional trauma of debt is especially challenging. So, how can a surviving partner cope with debt liability? The answer lies in some legal nuances that can help you tackle the situation.
Let us see how different debt categories influence your responsibilities after a partner’s death.
Secured debt
When a debt is backed against a secured asset like property, it is known as a secured debt. This kind of debt can raise a potential problem if the deceased passes away before it is cleared. Default in payments requires the survivor to consider two factors in case of secured debt. First, the value of the asset must be determined. Second, the deceased’s share in the asset has to be evaluated.
If the asset is jointly owned, the collateral cannot be considered for sale to pay off the debt, as the share of the deceased passes to the surviving owner. In this case, you must continue making payments on the loan as per the agreement. If you are unable to do so, the bank can seize and sell the asset to cover the debt amount. If you want to understand more about joint life insurance, read this.
If your deceased spouse solely owns the asset, it can be used to pay off the outstanding amount. However, as a legal survivor, you must notify the creditor and provide them with a death certificate for the same.
Unsecured debt
Unsecured debt is not backed against any collateral security. Hence, they have a much higher interest rate. These include credit card loans, medical bills, car loans, utilities, etc. Since it is not secured against any asset, creditors cannot seize your items in case of a default.
Legal heirs are not liable to clear unpaid dues on unsecured debts unless an asset is inherited from the deceased. If an asset is inherited from your spouse, the creditor can legally claim the outstanding amount through a sale of these assets.
In case you are unable to clear off unsecured debt and declare bankruptcy, there are no adverse legal consequences. However, it would become very difficult to secure a loan in the near future, due to a negative credit score.
Joint debt
If your spouse has entered into a financial agreement with a second person (either you or a partner), it is called joint debt. Credit agreements, joint bank accounts, etc. are common examples.
Let’s consider a hypothetical situation. If you and your recently deceased spouse had a joint loan, the liability to clear the pending amount passes to you after their death. You are liable for the entire amount and not just your ‘half-share’.
Related: Should women opt for a joint bank account?
The need for life insurance
One thing to do in a scenario like this is to check for a life insurance policy. A term life insurance plan will take care of your overhead debt expenditures. The untimely death of a partner can trigger financial and emotional turmoil for the survivor. It is always a good idea to opt for a term insurance policy that is flexible and suits your needs. Read this story to understand how to manage a spouse's death claim.
